Borders and Blockbuster: Throwing Money Down a Rat Hole

It now appears that Border’s and Blockbuster will get their life-saving transfusions of cash and will live to fight another day.  As P.T. Barnum once said:  “There’s a sucker born every minute.”

Neither of these companies deserves to survive.

Blockbuster, which once dominated the video rental market, is yesterday.  Netflix has run circles around them and continues to do so.  And, there is no reason for it.  Blockbuster fell victim to what the late and great Theodore Levitt called “marketing myopia,” which among other things is a failure of management to recognize that growth and profits are not forever.  Blockbuster mistakenly believed they were in the video rental business and not the home entertainment business.

Had Blockbuster properly defined itself, it would have realized early on that people didn’t enjoy the trip to video rental store to obtain the movie and liked even less the irritating trip back to the store to put the movie into the slot.  Blockbuster probably believed that when they came back to the store to return the movie, they would take out another.  Such thinking is vendor-focused and not customer-focused.  Why didn’t they ever think of setting up convenient drive-up drop-boxes where customers wouldn’t have to get out of the car.

Remarkably, while Blockbuster is getting the cash infusion, Netflix is setting records.  Bursting through all expectations, Netflix reported quarterly earning s of $47.1 million or $.87 a share on revenues of $596 million.  Forbes Magazine predicted its price per share, currently $125, could rise to $300 to $325.

Unlike Blockbuster, who felt comfortable sitting on its laurels, Netflix consistently is working to make its current customer satisfactory delivery systems obsolete and continues to concentrate on innovation.

If Amazon is looking for a brick and mortar presence, they might think of acquiring Blockbuster locations simply for the real estate and maybe set up e-tailing locations with high-profit, fast-moving merchandise and  on-line catalogs.  But why?  Customers can order whatever they need over their own computers and UPS will deliver.

Then there is Borders.  Once right at the pinnacle of book retailers along with Barnes & Noble, Borders found it was unable to compete.  So Borders went south while B&N went north.  B&N has not chalked up the miraculous growth that Netflix has achieved,  but their balance sheet is comfortably in the black.  Third-quarter (ended October 30, 2010) showed profits of $12.6 million, $.22 a share.   Quarterly revenues were $1.9 billion.  Revenues in retail can be deceptive because of low margins and high costs.  Its fourth-quarter earnings report might give an indication of how successful its e-book marketing program, focused on its “Nook” reader, has become.

A good prediction would be an acquisition by B&N of Borders.  They probably could “steal” the company and it could close stores near each other and easily develop new locations.